RHB Bank Singapore analyst Vijay Natarajan has maintained his “buy” call on CapitaLand Ascendas REIT A17U (CLAR), with an unchanged target price of $3.21.
The analyst’s report dated Oct 15 comes after CLAR’s recent divestment, which Natarajan believes reflects hidden upside potential across its Singapore assets.
In an announcement on Oct 11, CLAR stated that it would be divesting 21 Jalan Buroh for $113 million, representing a 67% premium over the latest independent valuation in July. Natarajan notes that this translates to an exit net property income (NPI) yield (FY2023) of 4%.
In its announcement, CLAR states that 21 Jalan Buroh is a fully-occupied three storey ramp-up warehouse with a seven-storey ancillary office block with a land lease tenure of 31 years left.
Natarajan notes that media sources have identified Shanghai-based GDS Holdings as the buyer that intends to build a data centre (DC) in the location, set to be operational in 4Q2026.
This divestment highlights the potential hidden value in some of CLAR’s assets, Natarajan adds, noting that CLAR has other industrial assets in Tai Seng and Ubi that could offer redevelopment uplifts and opportunities in the future.
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Natarajan recognises that another near-term opportunity that could unlock value in CLAR’s Singapore DC assets could arise from its top tenant, Singtel.
Singtel is CLAR’s largest tenant — representing 3.4% of its monthly gross revenue as of June — has presence across three of CLAR’s Singapore DC assets, Telepark, Kim Chuan Telecommunication Complex (KCTC) and 38A Kim Chuan Road. CLAR acquired Telepark and KCTC in 2005 with a 20-year lease term.
Natarajan notes that based on RHB’s channel checks, Singtel is unlikely to renew their leases as it plans to consolidate operations in its new modern DCs to better meet its growing DC needs.
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Natarajan understands that the leases have been restructured and as the expiries are staggered, they are unlikely to impact earnings significantly.
Furthermore, Natarajan believes that the “tenant exit could provide a good opportunity to upgrade or redevelop these assets into more modern facilities and benefit from greater DC demand in Singapore with less than 2% overall market vacancy”.
According to Natarajan, CLAR’s gearing is comfortable at 37.4% post-divestment, presenting approximately $500 million debt headroom before hitting the 40%.
CLAR is also currently in active discussion for the redevelopment of Welwyn Garden City in the UK, a DC asset with significant increase in power capacity of approximately 60 megawatts (MW). Natarajan believes this is likely to materialise given the UK government’s push to build more DCs.
As at 11.52am, units in CLAR are trading 4 cents higher, or 1.44% up, at $2.81.
